Discussion of “On the relation between predictable market returns and predictable analyst forecast errors”

Discussion of “On the relation between predictable market returns and predictable analyst... Rev Acc Stud (2008) 13:292–294 DOI 10.1007/s11142-008-9070-7 Discussion of ‘‘On the relation between predictable market returns and predictable analyst forecast errors’’ Gerald T. Garvey Published online: 4 March 2008 Springer Science+Business Media, LLC 2008 1 Summary This paper should be influential and widely cited. It furthers our understanding of two major issues in financial accounting. Most directly, the results undermine the validity of using analyst earnings forecasts as proxies for market expectations. The paper does a thorough job of estimating and documenting sources of analyst forecast error and shows that the market does not share many of these errors. The relevant results are nicely summarized in Table 6. Most strikingly, the results with revisions and past forecast error (UE) indicate that analyst forecast errors are significantly autocorrelated, but this appears to be largely understood by the market. The paper’s main results are also informative about the relative reliability of some well-known return anomalies. Turning again to Table 6, we see that accruals and related accounting anomalies fare rather well in that much of their return- forecasting properties can be traced back to their ability to forecast analyst errors. The momentum and past revision anomalies do not fare so well. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Discussion of “On the relation between predictable market returns and predictable analyst forecast errors”

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Publisher
Springer Journals
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-008-9070-7
Publisher site
See Article on Publisher Site

Abstract

Rev Acc Stud (2008) 13:292–294 DOI 10.1007/s11142-008-9070-7 Discussion of ‘‘On the relation between predictable market returns and predictable analyst forecast errors’’ Gerald T. Garvey Published online: 4 March 2008 Springer Science+Business Media, LLC 2008 1 Summary This paper should be influential and widely cited. It furthers our understanding of two major issues in financial accounting. Most directly, the results undermine the validity of using analyst earnings forecasts as proxies for market expectations. The paper does a thorough job of estimating and documenting sources of analyst forecast error and shows that the market does not share many of these errors. The relevant results are nicely summarized in Table 6. Most strikingly, the results with revisions and past forecast error (UE) indicate that analyst forecast errors are significantly autocorrelated, but this appears to be largely understood by the market. The paper’s main results are also informative about the relative reliability of some well-known return anomalies. Turning again to Table 6, we see that accruals and related accounting anomalies fare rather well in that much of their return- forecasting properties can be traced back to their ability to forecast analyst errors. The momentum and past revision anomalies do not fare so well.

Journal

Review of Accounting StudiesSpringer Journals

Published: Mar 4, 2008

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